Substance Over Form: Debate Enters Indirect Tax Regime

SCC Online Blog 2022

11 Pages Posted: 15 Jun 2022

Date Written: June 2, 2022


Without elaborating how and why, the Supreme Court recently declared that it “has consistently applied one test: substance over form” to opine that the form and style of employee-secondment agreement was “not decisive of its nature” and re-characterise the relationship between the parties as of ‘manpower supply services’ by one to another. This declaration in Northern Operating case has brewed a storm in the tax fraternity – particularly in the sphere of indirect taxation to which this decision relates – given that it unsettles the relatively tranquil interpretative rule that the tax-authorities cannot disregard the legal structure and re-characterise the transaction in the absence of fraud or overwhelmingly compelling circumstances.

Taking note of economic realities and the ‘substance’ of the bargain struck between the parties, the Supreme Court rejected the legal framework of their agreement to confirm demand of service tax on the transaction. In this process, the Court failed to advert to its earlier precedents revalidating the taxpayers’ choice of form of transaction which continue to hold the field in view of the conspicuous parliamentary abstinence to enact ‘general anti-avoidance rules’ in indirect tax paradigm unlike the income tax law. This note seeks to dissect the dichotomy which arises in the jurisprudential confines of indirect tax law on account of this decision.

Keywords: Substance Over Form, Anti-Avoidance, Tax, GAAR

JEL Classification: H25, K34

Suggested Citation

Jain, Tarun, Substance Over Form: Debate Enters Indirect Tax Regime (June 2, 2022). SCC Online Blog 2022, Available at SSRN: or

Tarun Jain (Contact Author)

Supreme Court of India ( email )

New Delhi

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